Court Dismisses CFPB's ECOA Action Alleging Discrimination Against Prospective Applicants Against Nonbank Lender

• Jurisdiction: United States,Federal
• Law Firm: Goodwin Procter LLP
• Subject Matter: Employment and HR, Discrimination, Disability & Sexual Harassment
• Author: Ms Chenxi (CC) Jiao
• Published date: 13 February 2023

On February 3, 2023, the United States District Court for the Northern District of Illinois granted Defendants Townstone Financial, Inc., a mortgage broker/lender, and Barry Sturner's, Townstone's owner, motion to dismiss the Consumer Financial Protection Bureau's (CFPB or Bureau) redlining complaint brought under the Equal Credit Opportunity Act (ECOA), ECOA's implementing regulation, Regulation B, and the Consumer Financial Protection Act. CFPB v. Townstone, 2023 WL 1766484 (N.D. Ill. Feb. 3, 2023).

The CFPB filed its claims in July 2020 in what was the Bureau's first redlining complaint against a nonbank mortgage company. The complaint alleged that Townstone redlined African-American neighborhoods in the Chicago Metropolitan Statistical Area by allegedly discouraging prospective African-American applicants in those areas from applying for mortgages.

The court granted Townstone's motion to dismiss on the basis that the ECOA applies only to applicants'not to prospective applicants. The court applied the Supreme Court's two part test from Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. and rejected the CFPB's arguments that the court should defer to the provisions contained in Regulation B. 467 U.S. 837 (1984). Although Regulation B provides that a creditor shall not make statements to "applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application," the court held that under Chevron step one, the plain language of ECOA "clearly and unambiguously" prohibits discrimination against applicants only and that under ECOA, applicants are defined as "a person who applies to a creditor for credit." 2023 WL 1766484 at *5 (emphasis added). Thus, the court concluded that "Congress has directly and unambiguously spoken on the issue at hand and only prohibits discrimination against applicants," and thus it did not need to reach Chevron step two to consider whether Regulation B, as the agency interpretation, reflects a permissible construction of the statute. Id. at *5-*6. The court noted that its decision was in line with previous Seventh Circuit precedent in Moran Foods, Inc. v....